Sunday, July 19, 2009

VFC's Latest Take on BioDelivery Sciences (BDSI)

I'd like to address the numberous inquires, emails and comments regarding my take on BioDelivery Sciences (BDSI) after the Onsolis approval and the subsequent drop in share price of the BDSI stock.

My initial thoughts on the post-approval stock are here, but I'll clarify my position on BDSI moving forward from this point.

The stock is undoubtedly a better buy right now than it has been- ever. Even when the stock was trading for two dollars it was just a speculative stock without an approved drug that was trading at a level that made it worth buying. Now BioDelivery is a company with an FDA approved drug and a technology that will only grow in value from this point on.

Looking at BDSI as a six dollar stock, a level below where it traded pre-approval, one could only surmise that it is a good 'growth' buy- for the long term. The reason why I consider it a long-term stock and not one that will pop next week is because of the market that we are trading in.

Take AGEN, for example. After Antigenics received approval for Oncophage in Russia the stock dropped to trade as low as nineteen cents. After trading for below a buck for the better part of a year, the stock is only now recovering as the date for commercial launch looms closer. The price drop after an approval is not the action that an investor would expect, but with the market behaving as it has since the crash, nothing should surprise you.

However, if AGEN showed us that a company's stock can drop after an approval, it also showed us that it will recover as the revenue stream created from the approval draws closer.

That is what will happen with BDSI, it's just a matter of when.

With the approval, it's a guarantee that BioDelivery will start getting paid when the drug hits the market, the question is just how much. Some investors may be wary of Onsolis reaching it's full potential because of the FDA restrictions and it's possible that those investors want to see how it does before becoming fully vested in the stock. It's possible, but not likely.

In my opinion, the stock is trading down because it's getting 'played' by players who got scared when the FDA delayed approval and now they want back in. They could have shorted at the eight dollar high last month and are going to try and cover while the stock is below five dollars.

With all the variables in place it's tough to predict anything, but one thing is for certain- whether the stock goes up a bit or down a bit from this point forward, it's a buy at these trading levels.

BDSI could open the week on Monday with a gap up and investors will be quickly rewarded and satisfied, but also keep in mind that BDSI could trade at it's current trading levels (or lower) for months until Onsolis hits the market later this year.

The small investor needs to ignore the volatility, count on the DD, and know that BDSI is about as safe a buy as you can get from a small pharmaceutical company right now, because of the Onsolis approval. You're no longer speculating, you're investing in a company that has an approved drug and a revenue stream pending. If you like this company and it's potential, accumulate now before the stock trades where it should be trading which, in my opinion, is right around ten bucks.

For full disclosure I will say that I'm not sure how long I will hold onto my shares. I'm playing on house money with BDSI and if the stock does not rise early this week, I may just take some of my money out of BDSI and put it into CVM. In my opinion, CVM has a better chance at a triple in price than does BDSI right now. It needs to be noted, however, that CVM is highly speculative right now while BDSI is a pretty safe bet.

Most of my BDSI shares were bought below $2.50, so while the stock is a good buy for those just getting in, it's also a good sell for those that got in for below $3. That being said, if BDSI drops any lower- say to $5- next week, I will buy more shares to hold for the long term.

I close with this:

BDSI is a great buy for six bucks as a small pharma with an approved drug. If you're investing for the long term, ignore the curious trading, do your DD and be confident that you have a winner.

Disclosure: VFC is long BDSI.

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